Today we’ll learn a unique way to structure a syndication, and how to find off market apartment communities. Dylan and his team have a great system in place, (wholesaled an apartment community for $400k profit) but it didn’t come easy. They prospect properties everyday, tune in to hear exactly what they are doing that works. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visitwww.fundthatflip.com/besteverto download your free negotiating guide today.

TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

With us today, Dylan Borland. How are you doing, Dylan?

Dylan Borland: Good, Joe. How are you?

Joe Fairless: I am doing well, nice to have you on the show. A little bit about Dylan – he is the CEO and chairman of the Borland Group, which is a full-service real estate investment firm. Since 2006, Dylan has completed over 2,000 real estate transactions. He is averaging over 100 fix and flips a year. They currently have a portfolio of 10 million dollars, and their goal is to increase that 90 million, to a 100 million dollar portfolio of multifamily properties in the next five years.

With that being said, Dylan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dylan Borland: Sure. First of all, thanks, Joe, for having me on the podcast. I enjoy listening to it, and hopefully we can provide some good value for the Best Ever listeners today. I will just kind of start briefly, I guess, with what — you want a little bit of background with how I got started in real estate and where I came from?

Joe Fairless: Yeah, and what you’re focused on now, too.

Dylan Borland: So I think a long story short, I actually started at a very early age, flipping cars when I was 13, because I had to figure out how can I make a dollar into a hundred. I came from an environment where if I wanted to eat lunch, I had to pay for it. If I was turning 16 and I wanted to get a car, I had to figure out where I was gonna get that capital from. So very early on I started flipping cars, and then I realized the profit margins were slim on that, so I was reading books and trying to figure out what business could I get into that could help me hit my income goals.

I read a book on real estate investing and got the bug. I bought my first property when I was 17. I had my girlfriend buy it at the time, because she was of legal age. I flipped it, I made a good amount of money, and then never looked back. That’s kind of a 30-second recap of how I got involved in real estate.

Going forward over the years — so I’ve been doing this since 2006, and my business, Joe, was primarily single-family residential. For about 2006 to 2016, we focused on basically single-family rentals and fix and flips. We got to a point pretty consistently where we were doing about 100 fix and flips a year. Then in about 2016 I got the multifamily bug.

Now we’ve been – in addition to our single-family properties – on a beaten path to acquire… Like you had mentioned, our goal is 100 million in value-add multifamily deals within the next five years. That’s kind of where we’re at now.

Joe Fairless: The ten million that you have, how many units is that?

Dylan Borland: That encompasses just under 200 units so far of our own properties.

Joe Fairless: And by “your own properties”, does that mean you don’t have any investors in it?

Dylan Borland: Good question. We actually operate on a syndication platform, which I’m probably sure your listeners are familiar with. With that, we’ll typically act as a sponsor on a deal, we’ll put in a good portion of the equity, and then syndicate the remaining investor. But I mean our own properties, because our goal on that is to build a long-term portfolio where there is an exit; any remaining investors get cashed out, we stay in the deal… And we also do, outside of that, property management for other clients, as well.

Joe Fairless: Okay, so the 200 units that’s worth 10 million is from a deal or deals that were syndicated, correct?

Dylan Borland: Correct, yeah.

Joe Fairless: Cool. And how many different syndications comprise of the 200 units?

Dylan Borland: Five total.

Joe Fairless: Wow.

Dylan Borland: We started with like the little small puppies, and then we realized, anything moving forward is gonna be 100 units or above.

Joe Fairless: Yeah, tell us about the small one, because that’s on average 40 units of syndication, and I always thought that it didn’t make financial sense to syndicate if it’s that small of a property, so talk to us about that.

Dylan Borland: Not all of them are syndicated. The smaller ones – there’s one of them that is syndicated, a 12-unit. Then we have another 12-unit, and then a 52-unit, and then we’ve got a 96-unit, and another small one as well. So there’s only one small one that was syndicated, but I put in the bulk of capital on that particular syndication, and then I had a couple friends come in with me on it, and then the other small ones are just owned outright. So those were not syndicated.

I have a 96-unit that was a syndication, and yes, it makes sense the bigger you go. The small ones do not make sense.

Joe Fairless: Okay. The small one that you did bringing partners – is that the 52-unit?

Dylan Borland: That is a 12-unit.

Joe Fairless: That’s a 12-unit. How did you structure that?

Dylan Borland: That’s a good question. Most of our syndications are structured about the same. On that 12-unit it’s about 180k in equity, of which the investors made up about 80k of it, and they get paid an 8% preferred return, and anything over that benchmark is split 80/20 on that particular deal.

Then we get our management fee, because we do the property management in-house, so if my memory serves me correctly, I think we’re getting about 4% or 5% to manage that particular property, in addition to that our own [unintelligible [00:06:42].05]

Joe Fairless: Okay, I appreciate that. Did you get an acquisition fee? Do you do that?

Dylan Borland: We do. I don’t think on those small ones we did, but typically we charge like on a 96-unit a 3% acquisition fee, but I don’t think we did on those, because it was such a small deal, and then the other ones we just own ourselves, they weren’t syndicated.

Joe Fairless: Yeah, that makes sense.

Dylan Borland: I would have loved to, but [unintelligible [00:07:04].18]

Joe Fairless: When you said 3%, is that in reference to the purchase price, or total capitalization?

Dylan Borland: We charge it on the purchase price.

Joe Fairless: Okay, 3%.

Dylan Borland: The 96-unit was 4,2 million acquisition price, and we charge 3% on that as our syndication fee.

Joe Fairless: Okay, and that is an 8% preferred return and 80/20?

Dylan Borland: That one’s a unique deal. That one is an 8% preferred return, it’s 70/30 over the benchmark, investors are actually getting about 14.72% internal rate of return, at five years they have an exit through a refi, but then they’re actually keeping equity in perpetuity. So they’ll get their capital back in five years, and then they’ll continue to get equity and earnings for as long as we hold the asset.

Joe Fairless: Okay. And going back to what you were saying earlier about your goal for your company, how does that align with your goal for your company? Because it sounds like you’re not exiting them out of that deal.

Dylan Borland: Well, they’re exited in the sense that their capital will be returned, and then at that point the ownership or the equity, the share in that income goes to 50/50. Our long-term vision is to be the end user of all the assets at exit, because our goal as a multifamily is the long-term generational wealth, so properties we just keep forever… We don’t have any exit plan on them.

So there’s enough meat on the bones in that particular deal that even when we split and offer investors equity, that 50/50, it’s a very healthy deal; we’re still earning a very healthy income on that particular property. We don’t offer equity in perpetuity very often, it’s just – there was so much meat on the bones in this one that it just was a nice thing to do for our investors.

Joe Fairless: Okay. So once they get their initial investment back, when you refinance which is project to be in five years, then it turns into a 50/50 structure because they don’t have any skin in the game, so it’s just 50/50 of whatever profits are after that.

Joe Fairless: Okay, cool. You’re educating me on a model I hadn’t quite seen — I’ve seen bits and parts of this from different models, I haven’t quite seen this structure; it’s really interesting.

Dylan Borland: Yeah. Most of the times, and you’re probably familiar with this, it’s just a clear exit. Capital is getting returned typically, because we’re buying in value-add, so we can typically exit investors out through the refinance to return their capital, and then they either reinvest in the next deal or go to another deal on their own. So it just lends itself to a very nice perfect storm, I guess, in that scenario, those particular ones… It’s overall good for the investors, too.

Joe Fairless: Yeah. If all goes according to plan, they’ve got their money back in five years, they’ve made a decent return, and now they’ve got ownership in 50% of the profits with no money in.

Dylan Borland: Correct.

Joe Fairless: The last deal you did – was it that 96-unit?

Dylan Borland: Yeah.

Joe Fairless: When did you buy it?

Dylan Borland: We’ve just actually closed on that property.

Joe Fairless: Congratulations!

Dylan Borland: And we’ve put it under contract back in April of this year.

Joe Fairless: Well, I thought there weren’t any good deals left in multifamily right now.

Dylan Borland: [laughs] There are so many good deals in that [unintelligible [00:10:28].12] and my best ever advice for your listeners – we can talk about that, but it’s called “we prospect every day.” There’s more to that, but we prospect off-market opportunities every single day. We’re just relentless with it.

Joe Fairless: Where is the 96-unit?

Dylan Borland: Southfield, Michigan.

Joe Fairless: Southfield, so you’re near Detroit. Is Southfield near Detroit, as well?

Joe Fairless: Okay. If I said “Hey, I’m going to visit Southfield, or I’m thinking about moving to Southfield”, what would the locals say about Southfield candidly?

Dylan Borland: They would say it’s a nice, stabilized area. [unintelligible [00:11:08].26] they have a city center there; it’s not a big city center, but they’ve got a hub with offices and everything under the sun you can imagine to do, any place to eat, a lot of activities. The city takes care of itself, the roads are good, the housing is good, they maintain strict order in terms of how properties are maintained and buildings are maintained… So it’s a very nice suburban type of environment, and safe.

It’s in a city called Oakland County, Michigan, which I think nationally is one of the wealthiest counties in the US, if I’m not mistaken. So it’s very well taken care of, and the properties are taken care of as well, and good, stabilized growth. It’s a nice area to be.

Joe Fairless: How much did you raise for this one? You said the purchase price was 4.2.

Dylan Borland: Yeah. Our total equity raise on this deal was 1.7. Of course, we have an 80/20 loan, so 20% down payment. Our syndication fee is included in that at 3%, and then closing costs, and then we have about $400,000 to $450,000 in capital improvements to the building upfront, which we were part of that raise.

Joe Fairless: And will you tell us the high-level business plan?

Dylan Borland: The high-level business plan in this particular asset – first of all, putting in the $450,000 is gonna go a long way to improving the exterior of the building, the common areas, the individual units, so we can get rents up. Rents are really low for the area, they’re about $100 to $150 below where they should be, and part of that is just poor management. There’s been one owner since it’s been built in the late ’70s, and they have not taken the effort to increase rents and maintain it, so very bad management.

And then the other thing is operating expenses are very high for this building. Operating expenses are about 55%, so our goal is bringing them down to 45% for a building like this. Those two elements alone are gonna increase the NOI significantly.

The properties are [unintelligible [00:13:05].18] and I think our value we projected on that within a very short period is gonna go from 4.2 to just under 6 million, and then the goal is to keep it long-term as an income-producing asset. Pay off the debt, and keep it in a portfolio.

Joe Fairless: Now, since we do similar things, I have the benefit of knowing the types of questions that investors ask you, so I’m curious what your response is to some of the frequently asked questions that I get. Are you ready for this?

Dylan Borland: I was born ready. [laughter]

Joe Fairless: Alright. I’m gonna phrase it sometimes how it’s phrased to me, so here we go – are you ready?

Dylan Borland: Sure.

Joe Fairless: It’s a frothy market… Isn’t this a bad time to invest in multifamily?

Dylan Borland: You know, that’s a very common question.

Joe Fairless: I know it is, I told you. [laughter]

Dylan Borland: I love that question, because it’s not right; so when you’re focused on buying right, it’s never a bad market. Our focus as a firm, any asset we buy is buying an undervalued, under-performing asset at deep discount. It’s a bad market for most people because all they know how to do is buy things turnkey, so they’re buying it at the peak of the market. So in that scenario, it’s bad, like buying a house at full market value. We don’t even do that.

So in essence, we’re buying our apartments for 50, 60, 70 cents on the dollar. If the market crashes, we’ve got a long ways to go before we start dipping into the equity on the property. And in addition to that, multifamily is in my opinion a very safe investment, because as the market starts to decline, people still need a place to live, and if they start to lose their houses unfortunately, they’ve gotta live somewhere, and where is that? It’s in apartments, typically, right?

So we see it as a very safe space, and again, if you’re buying right, and that’s what your focus and strategy is on, you’re gonna be safe. Now, if you go out and buy things at full cap rates that are turnkey assets, then probably not, in this market.

Joe Fairless: As it relates to your financing, how do you protect against interest rates continuing to go up?

Dylan Borland: Good question there. My partner in my company, David, deals mostly with the financing, but first of all we protect ourselves in terms of leverage. We limit ourselves to only applying a certain amount of leverage to the asset, but in terms of rates, we try to forecast out because markets move in cycles in real estate. They’re 10-12 years generally for our market in Michigan; they get hit differently in other areas, but we generally will shoot for like a long-term — I think our loan on that is the Freddie Mac Small Balance, so our interest will be locked for the next ten years. We’ve got it locked at 4.6%, and then after ten years it will change, of course.

So we plan kind of within a ten-year timeframe to have our interest rates locked, and then outside of that, there’s really not much more you can do, unless you put like a 30 or 40-year mortgage on it.

Then when we do our refinance, we make sure – we wanna refinance that building in 5-7 years – that our defeasance fees, our early termination fees are dropping off right in that timeframe, so we’re not getting hit with those either. We try to time it in cycle with where the market is at, because obviously we’re at a peak market right now; we’re gonna expect a crash, we’re gonna expect an incline, and then where are the rates gonna be hypothetically during that timeframe, so that lending doesn’t restrict during refinance either, and if it does, are we safe?

Joe Fairless: And then lastly — I have probably 57 of these questions, but we are limited for time… Let’s just do an easy one for you – what’s communication look like after closing?

Dylan Borland: With the investors?

Joe Fairless: Yes.

Dylan Borland: Good question. Investors get direct access, they get an investor login portal to all their investments, and then any possible opportunities in the future. And then I actually am responsible — I do the equity side here, so I’m responsible for keeping constant communication with them once a quarter. I get on the phones, I call them, I say “Hey, how are things going? Here’s some updates”, and then we give them quarterly updates in addition to their quarterly distributions. I make it a point to actually call everybody myself personally, at least once a quarter.

Joe Fairless: What is your best real estate investing advice ever?

Dylan Borland: I gave some thought to that, and I think it’s a two-part. I think the best advice I can give to people as it relates to single-family – I know we’ve just talked about multifamily, but we’re doing both; naturally, where I got my roots was in single-family – is to prospect. I think that’s the difference. Our firm does 100 fix and flips a year on the single-family side, and I swear the sole difference for that is we get on the phones -myself included – and we spend our days prospecting. So instead of buying the list and mailing to it like everybody does, we buy the list, run the phone numbers and make the calls.

In addition to that, it’s tracking your numbers, because what we track, we can improve. And if we track our numbers, we can build a predictable and a duplicatable business, so I know exactly what I need to do for my next deal, where I need to go. That’s a key element that a lot of people probably don’t hear, and they probably don’t teach out there, but I think that’s been the biggest accelerator to our growth, and continues to be.

Is that marketing, waiting for the business to come to you? You just asked me where are all the good multifamily deals… We download the list and we call.

Joe Fairless: Where do you buy it from or download it from?

Dylan Borland: We use CoStar, which I think is national. Have you heard of CoStar?

Joe Fairless: Of course, yeah.

Dylan Borland: We build that list through CoStar for multifamily, and then for single-family you just buy your traditional list: your absentees, your probates, your foreclosures… Instead of mailing to them, you just get the phone numbers and call.

Joe Fairless: With CoStar you do a search for your area and the type of property you’re looking for, and then does that give you the phone numbers, or do you have to take an extra step for that?

Dylan Borland: CoStar does give us the owner’s name, address, the true owner, and then their phone numbers. I think there’s rare occasions where the phone numbers are not attached, and then those are pretty easily found. But generally speaking, when you export it, the phone numbers are there as well.

Joe Fairless: How do you find them easily?

Dylan Borland: We use two companies – either White Pages Premium… Most of these properties are owned by corporations or companies who have some sort of an internet presence. Number two – or number three, if we go deeper than that – we use a service called [unintelligible [00:19:21].21] which really gets deep into scrubbing the data and getting us accurate contact information for the property owner. And [unintelligible [00:19:29].21] number seven.

Joe Fairless: And the big differentiator for you is you’re picking up the phone and calling, versus doing the direct mail thing, for apartments.

Dylan Borland: We spend less than $1,000/month on our marketing for both residential and multifamily. The big differentiator is picking up the phone.

Joe Fairless: You just found my number, I’m an apartment owner, you just called me… What do you say?

Dylan Borland: We’re just reaching out to you… Hey, Joe. I just wanna introduce myself – my name is Dylan over at the Borland Group. We’re looking at buying properties in your particular area, and that’s how we found out about yours. We wanted to see if you have any interest in selling.

Joe Fairless: Just like that. What do you need from the conversation in order to get what you want out of it?

Dylan Borland: It’s a numbers game, right? So the vast majority of people aren’t interested in selling, but we’re looking for the one that does, and all that person has to say is “Yeah, I have a slight interest” or “What would you offer me?”

If there’s any inclination that they would like an offer, then we start the process from there. That’s collecting the data, getting the rent rolls, the occupancies, and then make them an offer, see if it makes sense for them.

Joe Fairless: Easy enough.

Dylan Borland: Yeah, it’s pretty easy. Just pick up the phone and just say “Are you interested in selling?” I think where people get frustrated is because you make 100 calls, 99 people are gonna say “I’m not interested in selling”, but you’re only looking for the one that is. And the one that is — like Southfield, for example, that’s how we got the Southfield deal… We got it off market a month before he was gonna list it with a broker, and we bought it $10,000-$15,000 under market value. We got it for $43,000 a unit (I think it was), and they’re trading for 53k-56k in that area in their current condition.

Joe Fairless: Good for you, I love hearing that. You said $1,000/month – does that include your CoStar subscription?

Dylan Borland: Good question – no, that does not include the CoStar subscription. We have a brokerage — it’s like $320 or $350/month, I think. You get a discount I guess if you’re a broker, I think that’s how it works.

Joe Fairless: Well, we’ve been talking about the lead generation – I think I asked you the best real estate investing advice ever, right? Because that was your lead gen prospect… Cool, I just wanted to make sure… We’ve mentioned it a couple times already and you said it was going to be it, and I’ve been taking so many notes on this call… I’ve been soaking it up and I got a little lost.

Dylan Borland: Best ever book I read is a book from Matthew Ferry; it’s actually a course on NLP, which is neurolinguistic programming. The salespeople out there may have heard of that. If you haven’t, look it up; if you wanna be a good salesperson, it’s fantastic stuff.

Joe Fairless: Best ever deal you’ve done?

Dylan Borland: Best ever deal I’ve done… I actually wholesaled an apartment building and make 400k on it instantly.

Joe Fairless: Wow!

Dylan Borland: That was not our intention; we were planning to keep the building and take it through the repositioning process. We got it at such a good cap rate, we got an immediate offer from another investor, and we looked at each other and said “Let’s set it loose.” We made a quick 400k, so… That worked out great.

Joe Fairless: That’s outstanding. How many units was that?

Dylan Borland: 162.

Joe Fairless: 162…

Dylan Borland: In Ocala, Florida.

Joe Fairless: How did you come across one in Florida?

Dylan Borland: I have a partner down there. He’s the one that actually got me involved in multifamily. We’re part of the same sales coaching program, and he brought it to our attention and asked if I wanted to go in on it, and I said “Absolutely.” So he is boots on the ground in that area,

Joe Fairless: What’s a mistake you’ve made on a transaction?

Dylan Borland: The biggest mistake I made is in the residential world; we were fix and flipping a house and I had a contractor embezzle 18k on the renovations. I had to eat that. We learned very quickly how to correct that process.

Joe Fairless: How did you correct it?

Dylan Borland: I just systematized it. Our renovation has a system now attached to it, and part of that system is making sure, as we tour the properties, that we’re not paying out in advance as to where the renovation is. That was the challenge there, we kept making distributions on it, and cabinets weren’t showing up, material wasn’t showing up, and it was obvious that the money was going somewhere else.

Now we walk through our renovations, the contractor has to catch up if we’re ever over where the renovation is currently at. We just won’t make the next distribution until they catch up. And it goes deeper than that, but there’s a whole system that we’ve established to prevent anything like that from happening again, and thank god it’s been five years, and I think we’ve mastered it.

Joe Fairless: Best ever way you like to give back?

Dylan Borland: I like that question. I think for me, what I get the most satisfaction is we run a free monthly coaching meetup for real estate investors, and I really get a lot of joy out of it. I like teaching people. I’ve seen a lot, I’ve been through a lot, and we teach people there at no cost, and we’ve been able to help a lot of people… So I really enjoy that.

Joe Fairless: Best ever way the Best Ever listeners can get in touch with you?

Dylan Borland: I think the best way for me is to either on Facebook, which I think the handle is @DylanSBorland… Or the e-mail will probably be best, and that’s dylan@borlandcapital.com.

Joe Fairless: Cool. Do you all have a website? Is it BorlandCapital.com?

Dylan Borland: We’ve got a few. We’ve got one for the capital, we’ve got one for residential property management, but if you go to any of them, it will direct you to the other one. So BorlandCapital.com, or BorlandCommercial.com, or TheBorlandGroupLLC.com is our residential site. But they all interconnect.

Joe Fairless: Cool. Dylan, thank you for being on the show. Thank you for giving us tremendous advice and insight into your business, how you’re prospecting for deals, how the key is the phone call, not just mailing something out passively. It’s actually getting on the phone and having those conversations. And you’re right, when you’re dealing with larger stuff, you don’t need to hit 5 out of 20, you need to hit 1 out of 100, and that’s okay, because I guarantee you you can call 100 phone numbers in one week and if you get that one under contract, it will be well worth the effort.

I really appreciate it, Dylan. I hope you have a best ever day, and we’ll talk to you soon.